A Personal Loan proves to be extremely helpful when an individual needs money. Thanks to advanced fintech technologies and modern Non-Banking Financial Companies (NBFCs), Personal Loan application procedures have become so easy and quick these days. However, since these are unsecured loans with higher risk for lenders, their interest rates are usually higher than secured loans. Moreover, when an individual borrows a loan during an urgency, they do not get enough time to compare and grab the best deal. Later, they may realise they could have opted for a better loan scheme.
A Personal Loan balance transfer is an ideal way to get a new loan plan and save money. Let’s see how this option helps.
What is a Personal Loan Balance Transfer?
First of all, understanding the balance transfer process is crucial. It transfers the balance from the current loan to a new lender, usually with better interest rates and loan terms. However, it is beneficial only when the borrower is in the initial stages of the repayment tenure when most of the loan is still left for repayment.
How Does a Balance Transfer Work?
When an individual proceeds with a Personal Loan application process for a balance transfer, the new lender pays off the loan to the current loan company and creates a new repayment plan for the borrower according to their policy. Those with a regular income, stable job, and consistent credit history have better chances of saving money with a new loan deal. Such individuals get lower interest rates with favorable terms and conditions, helping them save money with better loan plans.
Benefits of a Personal Loan Balance Transfer
A borrower can save money and benefit from a Personal Loan balance transfer in many ways:
- Existing Personal Loan borrowers can transfer their loan plan even in the middle of the loan. If they transfer the loan balance to a lender offering a lower interest rate, their EMI amount automatically decreases, and they save money by the term’s end. Lending institutions often offer competitive interest rates to attract rival lenders’ customers. Such a competitive environment among Personal Loan providers can be advantageous to borrowers.
- Suppose the borrower plans to transfer their balance to a new lender offering a lower interest rate. In that case, they also get a chance to negotiate the interest rate with their current loan company. Those with a good repayment history may obtain a revised interest rate from their existing lender. As a result, they get two loan offers. They can compare and choose one with the better loan deal.
- Apart from getting a better loan deal with lower interest rates, borrowers also get a chance to get a top-up on their current loan to finance a big-ticket expense. For instance, an individual currently servicing a Personal Loan and needing more funds may not qualify for another loan due to the high Debt-to-Income (DTI) ratio. However, if they transfer the current loan to a new lender, they can get a top-up loan in addition to the current balance.
The personal loan balance transfer facility is pretty helpful for users who are not happy with their current loan plan. If they get a better loan deal, they can download the lender’s loan application app on a smartphone and apply for a balance transfer. It helps an individual get better EMI plans, lower interest rates, and longer repayment tenures to save money.